Pakistan Boosts Debt Strategy, Secures $1B Loan and Prepares for IMF Talks

Pakistan has fulfilled a crucial requirement set by the International Monetary Fund (IMF) by enhancing its debt maturity profile and securing a $1 billion foreign commercial loan scheduled for April, according to a recent report.

This development comes as the nation witnesses improvements in its debt indicators, including a significant reduction in debt accumulation, which has slowed to single-digit growth after years of rapid increases.

The Finance Ministry disclosed that by December 2024, the average maturity period of domestic debt had been extended to three years and three months, surpassing the IMF’s stipulated requirement of two years and eight months. This adjustment, made possible by reducing dependence on short-term Treasury bills (T-bills) and shifting focus to long-term Pakistan Investment Bonds (PIBs), has effectively mitigated refinancing and interest rate risks while reducing reliance on commercial banks.

Eraj Hashmi, Director of the Debt Office, emphasized that this move toward longer-term bonds has bolstered investor confidence, drawing those looking for steady, long-term returns.

Pakistan is also set to initiate formal negotiations with the IMF on March 3, with talks expected to last until March 14. A positive outcome from this review could trigger the release of the second tranche of the IMF loan, valued at $1.1 billion.

Meanwhile, the government is finalizing a $1 billion foreign commercial loan, supported by a $500 million credit guarantee from the Asian Development Bank (ADB). Leading financial institutions such as Standard Chartered, Deutsche Bank, and a Chinese bank have shown interest in the deal, according to sources.

The government is also evaluating the option of issuing Panda Bonds through China, although this process is anticipated to take time. Preliminary projections suggest these bonds will offer a relatively low-interest rate of around 3.5%, far more favorable than the 8.5% rate Pakistan would face with Eurobonds.

The Finance Ministry expects a slowdown in debt accumulation, projecting total public debt will reach Rs77.5 trillion by June 2025, with a net increase of Rs6.3 trillion, which is lower than the Rs8.4 trillion increase in the previous year. In the first half of the fiscal year, Rs2.8 trillion was added to the debt stock at a moderate rate of 3.9%.

To further manage the debt burden, the finance ministry plans to continue its debt buyback strategy, having already repurchased Rs1 trillion in T-bills, saving Rs31 billion in interest expenses. In the latter half of the fiscal year, the government will prioritize buying back PIBs rather than short-term securities.